CIMA CIMAPRO15-P01-X1-ENG

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CIMA P1 - Management Accounting Question Tutorial Sample Questions:

1. A company is considering whether to develop an overseas market for its products. The cost of developing the new market is estimated to be $250,000. There is a 70% probability that the development of the new market will succeed and a 30% probability that the development of the new market will fail and no further expenditure will be incurred.
If the market development is successful, the profit from the new market will depend on prevailing exchange rates. There is a 50% chance that exchange rates will be in line with expectations and a profit of $500,000 will be made. There is a 20% chance that exchange rates will be favorable and a profit of $630,000 will be made and a 30% chance that exchange rates will be adverse and a profit of $100,000 will be made.
The profit figures stated are before taking account of the development costs of $250,000.
Use a decision tree to decide whether the company should develop an overseas market for its products.
Select one correct answer.

A) The overseas market should be developed.
B) There is 70% chance that the project will fail.
C) There is 65% chance that the project will fail.
D) There may be a loss of $110 000.
E) There is a chance to make $506 000 profit.
F) The overseas market should not be developed.

2. RFT, an engineering company, has been asked to provide a quotation for a contract to build a new engine.
The potential customer is not a current customer of RFT, but the directors of RFT are keen to try and win the contract as they believe that this may lead to more contracts in the future. As a result, they intend pricing the contract using relevant costs. The following information has been obtained from a two-hour meeting that the Production Director of RFT had with the potential customer. The Production Director is paid an annual salary equivalent to $1,200 per 8-hour day. 110 square meters of material A will be required. This is a material that is regularly used by RFT and there are 200 square meters currently in inventory. These were bought at a cost of
$12 per square meter. They have a resale value of $10.50 per square meter and their current replacement cost is $12.50 per square meter. 30 liters of material B will be required. This material will have to be purchased for the contract because it is not otherwise used by RFT. The minimum order quantity from the supplier is 40 liters at a cost of $9 per liter. RFT does not expect to have any use for any of this material that remains after this contract is completed. 60 components will be required. These will be purchased from HY. The purchase price is $50 per component. A total of 235 direct labour hours will be required. The current wage rate for the appropriate grade of direct labour is $11 per hour. Currently RFT has 75 direct labour hours of spare capacity at this grade that is being paid under a guaranteed wage agreement. The additional hours would need to be obtained by either (i) overtime at a total cost of $14 per hour; or (ii) recruiting temporary staff at a cost of $12 per hour. However, if temporary staff are used they will not be as experienced as RFT's existing workers and will require 10 hours supervision by an existing supervisor who would be paid overtime at a cost of $18 per hour for this work. 25 machine hours will be required. The machine to be used is already leased for a weekly leasing cost of $600. It has a capacity of 40 hours per week. The machine has sufficient available capacity for the contract to be completed. The variable running cost of the machine is $7 per hour. The company absorbs its fixed overhead costs using an absorption rate of $20 per direct labour hour.
Select ALL the true statements.

A) Material B was a relevant cost.
B) The relevant cost is $7080
C) The relevant cost is $7010
D) The cost for the production director meeting was a relevant cost.
E) The company absorbs its fixed overhead costs using an absorption rate of $20 per direct labour hour. This is a relevant cost.
F) The relevant cost is $7100
G) Material A was a relevant cost.
H) The machine is currently being leased and it has spare capacity so it will either stand idle or be used on this work. The lease cost will be a relevant cost or $10 per hour.
I) The components are to be purchased from HY at a cost of $50 each. This is a relevant cost because it is future expenditure that will be incurred as a result of the work being undertaken.

3. Explain why sensitivity analysis is useful when dealing with uncertainty in project appraisal.
Select all the true statements.

A) Sensitivity analysis enables a company to determine the effect of changes to variables on the planned outcome
B) Sensitivity analysis enables a company to determine the effect of changes to fixed costs on the planned outcome
C) In project appraisal, in analysis can be made of all the key variables to ascertain by how much each variable would need to change before the net present value (NPV) reaches 100% i.e. the maximum point.
D) In project appraisal, an analysis can be made if all the key variables to ascertain by how much variable would need to change before the net present value (NPV) reaches zero i.e. the indifference point.

4. Explain how probability analysis could be used to assess the risk of the evaluated projects.
Select all the true statements.

A) The NPVs of a sample range of possible outcomes and the probability of each NPV can be calculated. If a small sample is taken the distribution of outcomes can be used to calculate the zero activities deviation of the NPVs and the probability of success of the projects.
B) The company can determine a range of possible outcomes for each of the cash flows in the project, for example, a high, low and medium estimate of each cash flow could be determined.
C) The probabilities can be combined to calculate the expected value of each cash flow element and of the project as a whole
D) The net present value (NPV) of the project, if all high, low or medium estimates occurred, can be calculated along with the combined probabilities of their occurrence.

5. THS produces two products from different combinations of the same resources. Details of the products are shown below:

Identify, using graphical linear programming, the optimal production plan for products E and R to maximize THS's profit in the month.

A) The solution (from the graph0 is to produce 495 units of E and 470 units of R.
B) The solution (from the graph0 is to produce 375 units of E and 870 units of R.
C) The solution (from the graph0 is to produce 375 units of E and 750 units of R.
D) The solution (from the graph0 is to produce 495 units of E and 670 units of R.
E) The solution (from the graph0 is to produce 475 units of E and 770 units of R.
F) The solution (from the graph0 is to produce 675 units of E and 470 units of R.

Solutions: